Grob’s comments come just a few days after the launch of MiFID II on 3 January.
As a directive, MiFID II is prescribed at an EU level, laying out particular aims and requirements. The rules are transposed into law in each EU member state.
Under MiFID II, investment research must be bespoke to each institution, and investment firms must pay for research with their own funds, or through a separate designated account, which is charged to the client.
This means that post-trade issues such as research payment policies should have been resolved before 3 January.
Personal Investment Management & Financial Advice Association (PIMFA) described the immense change that MiFID II would mean to the industry: “Seven years in the making, with a budget of over $2 billion and running in compliance costs, the monster movie that is MiFID II is finally on general release,” it said.
It added: “However, at the time of writing, the script is not yet complete, many areas of the new law and regulations remain opaque and greater understanding is needed before firms and their overburdened compliance officers can fully get to grips with exactly what they have to achieve.”
PIFMA also commented that at one point, even the Financial Conduct Authority (FCA), as the UK’s regulatory authority, were unable to ‘give guidance on European guidance’ and are consequently uncertain how best to put some of these elements into practice.
Though the FCA has now confirmed it will act if pricing reaches a stage where research appears significantly undervalued.
Ian Cornwall, director of regulation at PIFMA, said: “As the FCA recognises, the MiFID II project will continue in 2018 as the rules ‘bed down’ and further information is released by the European supervisory body.”
Grob seemed to have less faith and, when asked if MiFID II would actually change much, said: “Does the man in the street feel that today he has been somehow liberated from the clutches of capital markets? Frankly I doubt it.”
“And, best of all, are markets actually any safer? Well they are certainly more complicated”, he added.
For securities lending activities, MiFID II places responsibility on the lender for ensuring that a borrower of safe custody assets provides appropriate collateral and accounts for value variables during the borrow period.
This requirement applies in triparty agreements if the lender is still arranging for the transaction to take place.
However, although lenders must take responsibility for collateral, they are not required to hold the collateral directly, thereby allowing for central clearing to operate in the market.